Democratic Senators Skeptical Of Obama’s Stimulus Tax Cuts
Democratic Senators Skeptical Of Obama’s Stimulus Tax Cuts
The Wonk Room has been following the developing saga regarding tax cuts that President-elect Barack Obama is looking to include in an economic recovery plan. Today, the Senate Finance committee held a closed door meeting to discuss the plan, and some Democratic Senators emerged skeptical of the cuts, saying they “wouldn’t do much to stimulate the economy or create jobs.”
Lawmakers were reportedly “especially critical of a proposed $3,000 tax credit for companies that hire or retrain workers”:
- Sen. Kent Conrad (D-ND): If I’m a business person, it’s unlikely if you give me a several-thousand-dollar credit that I’m going to hire people if I can’t sell the products they’re producing…That to me is just misdirected.
- Sen. John Kerry (D-MA): I’m not that excited about it…The creation of a tax credit for hiring isn’t going to make up for the lack of goods being sold.
Also criticized was a plan to distribute tax cuts incrementally through workers’ paychecks:
- Sen. Ron Wyden (D-OR): In tough times, people don’t respond that well to marginal changes, such as a small amount of money added per paycheck.
Kerry said he’d “rather spend the money on the infrastructure, on direct investment, on energy conversion, on other kinds of things that much more directly, much more rapidly and much more certainly create a real job.”
Indeed, significantly more stimulus “bang for the buck” comes from direct investment in infrastructure than from any type of tax cut. One dollar invested in infrastructure has a return of $1.59 in GDP growth; the most effective tax cut, a payroll tax holiday, only returns $1.29, while most tax cuts don’t even return 50 cents.
However, in order for the stimulus to be large enough to make a difference, it is going to have to include some tax cuts, as there is only so much infrastructure spending that can be implemented quickly. But as Matthew Yglesias wrote, to be an effective stimulus the cuts need to “put money in the hands of individuals with a high propensity to spend.” This means lower- and middle-income families, not corporations or millionaires. To his credit, Obama has proposed some cuts of this kind.
The tax rebate passed last year by Congress was ineffective because it was poorly targeted. Economists have calculated that taxpayers spent just 12 percent of the rebate and put the rest of it into savings accounts or toward old debts. The current economic crisis is too dire for another misfired effort.
4 Responses to “Democratic Senators Skeptical Of Obama’s Stimulus Tax Cuts”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Wonk RoomContact Us
Donate
I’m a little bit confused by the opposition to structuring the individual tax cut so that 40-$80 dollars are automatically added to monthly paychecks. It seems to me that this will all but ensure that it gets spent, as it will be treated as normal income and will not feel like a special treat. Presuming folks are living paycheck to paycheck, 40-80 bucks a month is not large enough to make people feel like saving it or paying down a credit card will make a big difference. Similarly, its not enough money to encourage the purchase of a big ticket imported consumer item. These were the problems with the last stimulus rebate that was ineffective. It seems like Obama has addressed the weakness in the previous tax cut by structuring it in this new, to me at least, novel way. Does Wyden really believe that working families will fail to spend that extra 40-80 bucks? The goal of the stimulus should not be primarily psychological in nature. We need immediate spending more than we need some massive confidence boost associated with a large lump sum payment. I know what I did with my last stimulus check, I sent it straight to my credit card company. I fear many others will do the same if given another big chunk of free cash…
January 8th, 2009 at 7:46 pmThe high cost of fuel this past year did serious damage to our economy and society. After a brief reprieve gas prices are inching back up again. Our nation should not allow other nations to have such power over us and our economy . We have so much available to us in the way of technology and free sources of energy. WE seriously need to get on with becoming an energy independent nation. We are spending billions upon billions in bail out dollars. Why not spend some of those billions in getting alternative energy projects set up. We could create clean cheap energy, millions of badly needed new green jobs and lessen our dependence on foreign oil all in one fell swoop. I just read an eye opening book by Jeff Wilson called The Manhattan Project of 2009. It would cost the equivalent of 60 cents per gallon to drive and charge an electric car.If all gasoline cars, trucks, and SUV’s instead had plug-in electric drive trains, the amount of electricity needed to replace gasoline is about equal to the estimated wind energy potential of the state of North Dakota. Why don’t we use some of the billions in bail out money to bail us out of our dependence on foreign oil? This past year the high cost of fuel so seriously damaged our economy and society that the ripple effects will be felt for years to come.
January 8th, 2009 at 9:45 pmIt is good, for a change, to read comments by two serious, thinking people. Seth, anyone who has studied Economics 101 should understand the Propensity to Save (saving includes investing). The more one makes, the less he is likely to spend all his income. As his income increases, he is likelier to invest (or save) an increasing portion of that income. Consequently, a tax cut intended to foment consumption should focus on people with lower incomes, since they are more likely to have to spend all their incomes on necessaries. If you are suggesting that additional income, proceeding from tax cuts parceled out in relatively small amounts, is more likely to be spent (especially by lower income working people), then I agree with you. But I must go further.
Being an accountant, I am always thinking not in terms of spending per se, but in terms of “on what?” and “how effectively?” Tax cuts (foregoing needed revenue) are just another form of government spending. Many people believe as an article of faith that people spend money more efficiently than does goverment, and that the market best “decides” the best use of the money spent. Therefore, tax cuts are at their face the best option for driving an economy. To me, however, not being a member of that church, we should have learned with the failure of the markets in 1929, the failure of deregulated markets with the S&L crash of the early 90’s, and the failure of deregulated markets that has led to our current crisis, unquestioning faith in “free” markets alone is misplaced.
When people are wedded to this belief, they will not listen to my concern about “on what?” (for example, they will not listen to me when I ask whether we simply spending the money but whether we are also directing the spending toward a goal that will reap dividends and greater national wealth in the future). Here I believe that Brian has the stronger argument, simply because the government–not just private enterprise–can make good investments (TVA and NASA come to mind immediately). More important, private enterprise is not known to make such investments on the scale that government can. Furthermore, government investments (as opposed to near-exclusive reliance on private “spending”) can result in greater capital turnover in both the public and private economic spheres. The immediate spending on jobs, purchases, etc., generates jobs and new consumption, but–as the investments come into fruition–they subsequently generate more jobs and wealth.
Similarly, the faithul will not listen to me when I ask, “how effectively?” Nevertheless, cost-benefit computations, which are drilled into accountants and econommists, are necessary. If we are going to spend n dollars on tax cuts, what is the cost/benefit ratio? Now if we perform a similar computation on investment in alternative energy, not failing to include what is effectively the tax we now pay to foreign nations for their oil. Which results in the greater yield? Again, I agree with Brian.
For people to whom labels like “conservative” and “liberal” are important (they are meaningless to a practical person like me), I will add only that it is making the best use of our resources that sounds “conservative.” What our government has done under so-called “conservatives” has been anything but conservative!
January 28th, 2009 at 10:23 amI like the way you think. I’m going to tell some of my friends on the left about your website.
February 3rd, 2009 at 4:21 am